Adjusted EBITDA forecast for 2017 full year increased to around 22.3 billion euros

Deutsche Telekom increases the pace, both in terms of record investments and subsequently also with regard to customer numbers and financial results. Following a successful first quarter, the Group has once again posted higher growth rates across its key financial figures in the second quarter of 2017. Year-on-year, net revenue grew by 6.0 percent between April and June to reach 18.9 billion euros. Adjusted EBITDA rose by 8.9 percent to 5.9 billion euros. Net profit recorded strong growth of 40.7 percent to 874 million euros and, adjusted for special factors, it increased by 13.8 percent to 1.2 billion euros.

"Our record investments are paying off: Growing numbers of customers are choosing our networks and products. And revenue and earnings are lifting substantially on the back of this strong customer growth," says CFO Thomas Dannenfeldt. "That is especially true of our booming U.S. business, but the trend is also positive in Germany and our European companies."

With the results for the first six months now in, the Group is raising its full-year guidance. Adjusted EBITDA is now expected to reach some 22.3 billion euros, up from the 22.2 billion euros originally forecast, driven mainly by strong growth in the United States. The free cash flow forecast remains unchanged at 5.5 billion euros. Free cash flow increased 18.1 percent in the first half of the year to 2.53 billion euros. This figure takes into account the usual fluctuations over the quarters – an increase of 49.4 percent in the first three months to 1.2 billion euros and a decline of 1.4 percent in the second quarter to 1.3 billion euros.

The Group invested 3.0 billion euros between April and June, once again more than in the same period of last year – a substantial increase of 12.4 percent. Including expenses for mobile spectrum, this figure rises to 10.2 billion, of which 7.2 billion euros were used by T-Mobile US to acquire valuable spectrum at the extremely successful auction in the United States. In the first six months, Deutsche Telekom invested a record amount of 6.2 billion euros (before spectrum) worldwide, 13.5 percent more than in the same period of last year.

Net debt increased by a good five billion euros compared with the end of 2016 to 55.2 billion euros. This was driven mainly by the U.S. spectrum investments, partially offset by high free cash flow, the high acceptance rate of the dividend in kind, the disposal of Strato, the sale of the remaining shares in Scout24, and positive exchange rate effects. The balance sheet ratios are still within the target ranges and the Group's rating remains unchanged.

Germany – Growth in customer base and service revenues

In the first six months of 2017, Deutsche Telekom underscored its position in Germany as the driving force of the network build-out. Telekom Deutschland's capital expenditure grew by 17 percent to more than 2 billion euros. Deutsche Telekom thus remains by far the biggest investor in building out the telecommunications network for the future across Germany.

Customers appreciate the company's efforts. The number of customer households that are connected directly via high-speed fiber-optic lines (FTTH and FTTC/vectoring) grew by 622,000 in the reporting quarter to 8.2 million. For comparison: In the second quarter of 2016, this figure had been just under 580,000.

The number of customers choosing one of the MagentaEINS fixed-mobile bundles increased to almost 3.4 million in the second quarter. Year-on-year, this corresponds to an increase of more than 900,000 customers. Entertain remained the only Internet-based television platform (IPTV) in Germany that is posting growth. At the end of the second quarter, the number of Entertain customers passed the three-million mark – growth of almost 9 percent in just one year.

On the domestic mobile market, Telekom was the only provider to record a positive trend in service revenues in the second quarter, thus extending its position as market leader. Service revenues increased by 0.8 percent despite significant regulatory effects. 228,000 new branded contract customers also bolstered the customer base substantially.

And mobile customers are increasingly accessing the Internet on their mobile devices. Mobile data volumes grew again by more than 10 percent compared with the first quarter of 2017. Year-on-year, the increase amounts to 61 percent. Telekom continued to promote mobile use of the high-speed Internet with its ongoing LTE network build-out. At the end of June 2017, coverage stood at over 93 percent.

In the second quarter of 2017, Telekom posted revenue of 5.4 billion euros in Germany, up 0.6 percent year-on-year. Adjusted EBITDA increased by 1.1 percent to 2.1 billion euros. As a result, the EBITDA margin stood at 39.1 percent.

United States – Momentum continues unabated

Despite continued intense competition, T-Mobile US remained the undisputed growth superstar on the U.S. mobile market. Although all national providers now follow the trend for unlimited rate plans, the Un-carrier continues to set the tone. T-Mobile US added more than 1.3 million new customers in the second quarter of 2017, bringing the total number of straight quarters of more than one million customer additions to 17. The number of branded postpaid customers grew by 817,000. Churn rate continued to decrease and reached a record low of 1.10 percent.

T-Mobile US once again posted industry-leading growth rates in revenue and earnings. In the second quarter of 2017, service revenues increased by 8.5 percent year-on-year to 7.3 billion U.S. dollars. Total revenue increased by 9.7 percent to 10.2 billion U.S. dollars. Adjusted EBITDA was up by 18.0 percent in the same period to 2.9 billion U.S. dollars.

Europe – Customer growth accelerates

The national companies in Europe successfully and substantially increased customer numbers and accelerated the pace of growth with higher market investments, thus establishing a basis for future revenue growth. In mobile communications, the number of contract customers went up by 372,000 in the second quarter of 2017 to 24.9 million. 65,000 new broadband lines (retail) and 56,000 new TV customers were added in the same period. The marketing of fixed-mobile bundles remained particularly successful, with growth of 175,000 customers in the second quarter.

Network build-out and modernization activities also continue unabated. The number of households with access to fixed-network bandwidths of at least 100 megabits/second was up by more than one million year-on-year to around 5.3 million. The LTE mobile standard now covers 102 million people, an increase of 21 million year-on-year.

The financial indicators continued on a stable trajectory. Revenue in the second quarter reached 2.9 billion euros, up 2.4 percent compared with the same period of last year. In organic terms, i.e., excluding changes in the exchange rates and the composition of the Group, revenue was up by 1.5 percent. At the same time, adjusted EBITDA declined by 2.2 percent to 0.9 billion euros. In organic terms, adjusted EBITDA remained virtually stable year-on-year, down by just 0.2 percent.

Systems Solutions – Pricing pressure affects business

Order entry at T-Systems in the second quarter of 2017 decreased by 13.4 percent year-on-year to 1.3 billion euros. Some major contracts concluded in the prior year were not matched by comparable deals in the second quarter of the reporting year. Revenue decreased by 1.8 percent to 1.7 billion euros. Growth in telecommunications business and the Digital Division was not sufficient to fully offset the decline in the IT Division, mainly due to sustained price pressure in the industry.

T-Systems posted a substantial rise in earnings, with adjusted EBITDA up 22.5 percent year-on-year to 136 million euros. However, this figure largely reflects the usual quarterly fluctuations seen in this segment. Year-on-year, a stable full-year result is expected. Innovative digital projects in new business – primarily relating to the Internet of Things (IoT) – by contrast are showing positive developments. The Group recorded 11-percent growth in cloud business in the first half of the year.

The Deutsche Telekom Group at a glance:

Q2

2017

millions of

€

Q2

2016

millions of

€

Change

%

H1

2017

millions of

€

H1

2016

millions of

€

Change

%

FY 2016

millions of

€

Revenue

18,890

17,817

6.0

37,537

35,447

5.9

73,095

Proportion generated internationally (%)

68.1

66.0

2.1p

67.7

65.7

2.0p

66.3

EBITDA

5,986

4,697

27.4

11,949

12,364

(3.4)

22,544

Adjusted EBITDA

5,944

5,457

8.9

11,495

10,620

8.2

21,420

Net profit

874

621

40.7

1,621

3,746

(56.7)

2,675

Adjusted net profit

1,199

1,054

13.8

2,138

2,101

1.8

4,114

Free cash flowa

1,301

1,320

(1.4)

2,530

2,142

18.1

4,939

Cash capexb

10,240

2,703

n.a.

13,520

6,599

n.a.

13,640

Cash capexb

(before spectrum)

2,994

2,664

12.4

6,238

5,495

13.5

10,958

Net debt

55,249

48,692

13.5

55,249

48,692

13.5

49,959

Number of employeesc

216,135

220,821

(2.1)

216,135

220,821

(2.1)

218,341

Comment on the table:a Before dividend payments and spectrum investment.b Cash outflows for investments in property, plant and equipment, and intangible assets (excluding goodwill).c At the reporting date.

Operating segments:

Q2

2017

millions of

€

Q2

2016

millions of

€

Change

%

H1

2017

millions of

€

H1

2016

millions of

€

Change

%

FY 2016

millions of

€

Germany

Total revenue

5,371

5,338

0.6

10,768

10,723

0.4

21,774

EBITDA

1,995

1,699

17.4

4,016

3,592

11.8

7,327

Adjusted EBITDA

2,100

2,078

1.1

4,170

4,129

1.0

8,237

Number of employeesa

64,560

67,594

(4.5)

64,560

67,594

(4.5)

65,452

United States

Total revenue

9,236

8,196

12.7

18,218

16,012

13.8

33,738

EBITDA

2,635

2,123

24.1

5,025

4,391

14.4

8,967

Adjusted EBITDA

2,640

2,172

21.5

5,025

4,080

23.2

8,561

Europe

Total revenue

2,860

2,794

2.4

5,641

5,558

1.5

11,454

EBITDA

913

955

(4.4)

1,791

1,864

(3.9)

3,773

Adjusted EBITDA

947

968

(2.2)

1,836

1,899

(3.3)

3,866

Systems Solutions

Order entry

1,295

1,496

(13.4)

2,569

3,053

(15.9)

6,851

Total revenue

1,688

1,719

(1.8)

3,392

3,578

(5.2)

6,993

Adjusted EBIT margin(%)

2.4

0.9

1.5p

1.1

3.2

(2.1p)

1.8

EBITDA

97

33

n.a.

158

180

(12.2)

278

Adjusted EBITDA

136

111

22.5

232

307

(24.4)

530

Comment on the table:a At the reporting date.

Development of customer numbersOperating segments: Development of customer numbers in the second quarter of 2017

June 30, 2017

thousands

Mar. 31, 2017

thousands

Change

thousands

Change

%

Germany

Mobile customers

42,011

42,114

(103)

(0.2)

Of which contract customers

25,084

25,270

(186)

(0.7)

Fixed-network lines

19,477

19,648

(171)

(0.9)

Of which retail IP-based

10,351

9,801

550

5.6

Broadband lines

13,035

12,989

46

0.4

Of which optical fibera

5,033

4,693

340

7.2

Television (IPTV, satellite)

3,024

2,955

69

2.3

Unbundled local loop lines (ULLs)

6,723

6,952

(229)

(3.3)

United States

Mobile customersb

69,562

72,597

(3,035)

(4.2)

Of which branded postpaid customers

36,158

35,341

817

2.3

Of which branded prepay customers

20,293

20,199

94

0.5

Europe

Mobile customers

47,688

47,348

340

0.7

Of which contract customers

24,854

24,482

372

1.5

Fixed-network lines

8,464

8,486

(22)

(0.3)

Of which IP-based

5,416

5,190

226

4.4

Retail broadband lines

5,509

5,444

65

1.2

Television (IPTV, satellite, cable)

4,156

4,100

56

1.4

Comment on the table:a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).b 4.368 million wholesale customers (Lifeline program) no longer reported since Q2/17.

Operating segments: Development of customer numbers in year-on-year comparison

June 30, 2017thousands

June 30, 2016 thousands

Change

thousands

Change

%

Germany

Mobile customers

42,011

41,138

873

2.1

Of which contract customers

25,084

24,096

988

4.1

Fixed-network lines

19,477

19,971

(494)

(2.5)

Of which retail IP-based

10,351

7,958

2,393

30.1

Broadband lines

13,035

12,770

265

2.1

Of which optical fibera

5,033

3,577

1,456

40.7

Television (IPTV, satellite)

3,024

2,777

247

8.9

Unbundled local loop lines (ULLs)

6,723

7,648

(925)

(12.1)

United States

Mobile customersb

69,562

67,384

2,178

3.2

Of which branded postpaid customers

36,158

33,626

2,532

7.5

Of which branded prepay customers

20,293

18,914

1,379

7.3

Europe

Mobile customers

47,688

48,541

(853)

(1.8)

Of which contract customers

24,854

23,840

1,014

4.3

Fixed-network lines

8,464

8,639

(175)

(2.0)

Of which IP-based

5,416

4,514

902

20.0

Retail broadband lines

5,509

5,307

202

3.8

Television (IPTV, satellite, cable)

4,156

3,961

195

4.9

Comment on the table:a Sum of all FTTx access lines (e.g., FTTC/VDSL, vectoring, and FTTH).b 4.368 million wholesale customers (Lifeline program) no longer reported since Q2/17

This media information contains forward-looking statements that reflect the current views of Deutsche Telekom management with respect to future events. These forward-looking statements include statements with regard to the expected development of revenue, earnings, profits from operations, depreciation and amortization, cash flows, and personnel-related measures. They should therefore be considered with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Deutsche Telekom's control. Among the factors that might influence Deutsche Telekom's ability to achieve its objectives are the progress of its staff restructuring initiatives and other cost-saving measures, and the impact of other significant strategic, labor, or business initiatives, including acquisitions, dispositions, business combinations, and network upgrade and build-out initiatives. In addition, stronger than expected competition, technological change, legal proceedings, and regulatory developments, among other factors, may have a material adverse effect on cost and revenue development. Further, an economic downturn in the markets, and changes in interest and currency exchange rates, may also have an impact on Deutsche Telekom's business development and the availability of financing on favorable conditions. Changes to Deutsche Telekom's expectations concerning future cash flows may lead to impairment write downs of assets carried at historical cost, which may materially affect the results at the Group and operating segment levels. If these or other risks and uncertainties materialize, or if the assumptions underlying any of these statements prove incorrect, the actual performance may materially differ from the performance expressed or implied by forward-looking statements. There is no assurance that the estimates or expectations will be achieved. Without prejudice to existing obligations under capital market law, Deutsche Telekom does not assume any obligation to update forward-looking statements to take new information or future events into account or otherwise.In addition to figures prepared in accordance with IFRS, Deutsche Telekom also presents alternative performance measures, including, among others, EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EBIT, adjusted net profit, free cash flow, gross debt, and net debt. These performance measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS. Alternative performance measures are not subject to IFRS or any other generally accepted accounting principles. Other companies may define these terms in different ways.